China's currency hit a 12-year high Thursday and the Asian Development Bank (ADB) said that China's currency may appreciate by 3 percent this year.

In an unusual move, the bank made the forecast in its annual Asian Development Outlook journal which was released to the public Thursday.

It based its prediction on discrepancies between the U.S. dollar and a basket of currencies that China uses to set its currency against the U.S. dollar.

Tang Min, chief economist with the China Mission of the ADB, which is an Asian policy bank supported by numerous regional members, said the forecast represents the expectation of the currency market.

The exchange rate of the the Chinese yuan reached a 12-year high against the U.S. dollar which almost dropped to the magic number of eight yuan to one dollar. It closed at 8.0098\ to 1 U.S. dollar on Thursday.

The Chinese currency, also known as renminbi or RMB, chalked up its biggest ever weekly appreciation last week, up more than 3 percent since China's exchange rate reforms last July when the value of the yuan started to be linked with a basket of currencies rather than being pegged direclty to the U.S. dollar.

Last July China raised the value of the yuan by 2 percent, allowing the RMB yuan to be traded at a rate of 8.11 to a U.S. dollar, thus scrapping its decade-old pegging of one dollar for 8.27 yuan.

The United States has complained that the rate is still to high and American manufacturers contend that the RMB is undervalued by as much as 40 percent which gives Chinese exporters an "unfair" price advantage and hurts the U.S. labor market.

China's central bank said last month it will increase flexibility of the currency.

Cao Honghui, a finance research fellow with the Chinese Academy of Social Sciences, said the yuan's recent appreciation will be welcomed news as President Hu Jintao prepares to visit the United States.

Source: Xinhua